Finance minister Mrs. Nirmala Sitharaman announced yesterday, 30 Aug 2019 that 10 public sector banks will be merged in 4 banks as a part of a consolidation exercise to help ailing banking sector. The four banks that will be retain their names will be Punjab National Bank, Canara Bank, Union Bank of India and Indian Bank. The exercise began in 2017 when 5 associate banks of SBI merged into it and last year Vijaya Bank and Dena Bank had also been merged into Bank of Baroda. Apart from this there are plans to infuse 55,000 Cr into the industry to help spark their growth.
What’s been happening in Banking?
Fintech companies have increasingly been seeing investments and M&A activities globally; banks have been feeling the pinch as some of the investments might be at the cost of banks. According to a KPMG report, between ’14 and ’17, Fintech companies received about ~1.5Bn every each and that increased to ~$41.7Bn in just the first six months of 2018 with as many as nearly 800 deals.
Why is this happening: Inefficiencies?
Well, yes. But, there is more. Answer lies in an often cliched question – when did you last visit your bank? Let me ask another question! When was the last time you accessed your bank website on your laptop? Yes, that is “Changing consumer preferences”.
The next gen consumer wants things on their palmtops. The term “Digital Only Bank” has been coined to institutions that provide all solutions that our grand old State Bank of India will provide, only, it will provide those online i.e. through app platforms, mobiles, tablets.
What the recent consolidation could mean for Indian Banking:
Low Hanging Fruits:
- There will be some branches that could be shut down in areas where there are overlaps and not enough footfall.
- There could be some employees that could be laid off or, if, there are no layoffs, there could be small decline in new hiring.
- Talent consolidation which would mean putting the right man in the right place.
Beyond this, RBI and Finance Ministry should ensure there is effort invested in each of the below:
- Move away from Legacy technology: There is push for modernizing bank infrastructure so there is collaboration possible with upcoming tech solutions such as digital wallets, financial planning solutions, payment partners, etc.
- Digital Banking – There should be a push for banks to go digital. The millennials shouldn’t frown at the thought of using a Public Sector Bank; they should feel excited instead.
- Rebranding – It should be another critical item on the agenda; the aim should be to walk away from the image of an old bank and to create a new one where catering to changing consumer behavior is the most important
- Creating your own niche – while this may be an intermediate to long term goal it wouldn’t harm to have the merged entities create a niche for themselves where someone specializes in Consumer banking, someone is corporate, someone in investment & wealth management. Some competition will do no one any harm.